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With the likes of Toyota‘s new Yaris, Nissan‘s Versa and Honda‘s Fit, as well as Chevy‘s second-generation, Korean-built Aveo all hitting American roads in the past year, the sub-compact market in the U.S. is clearly booming, fueled in large part by rising gas prices.

Chrysler, which has no presence in the segment, is looking to join the small car party and is actively searching for a partner for a sub-compact it is planning to build. That partner is starting to look more and more like it will have a Chinese address.

The automaker, which has been parading its Dodge Hornet concept sub-compact around the auto show circuit and other events to gauge interest in the vehicle, apparently is leaning toward China’s Chery Automobile Co. Ltd., to produce a small, Dodge-branded car for export to world markets, likely including the U.S., according to published reports in the Detroit News and German Magazine Der Spiegel.

Chrysler CEO Tom LaSorda, speaking to the Automotive Press Association in Detroit on Monday, said the company has not ruled out China as the production base for the new car.

iThe only way the Chrysler Group can make a business case for a low-margin sub-compact is through a partnership which allows us to reduce capital investment Oe bring product to market faster Oe and meet low cost and high quality targets,i he said. iWe continue to discuss a B-segment venture with potential partners Oe and all I can tell you today is stay tuned,i LaSorda said.

The company has been in talks with automakers in Europe and Asia as well and hopes to have a decision made by the end of the year, LaSorda said.

We know we can’t do it alone,” LaSorda added. “The capital expense alone would be very high.”

Chery is a state-owned carmaker based in eastern China that had been planning a U.S. market debut with the help of entrepreneur Malcolm Bricklin. The planned partnership has hit several snags and the launch date for the Chery brand in the U.S. has been postponed to 2008 at the earliest.